Is having a new Prime Minister a good thing for local investors? If history is any guide, the answer is a resounding "yes".
We are already starting to see some positive effects from the bounce in the Australian dollar when Malcolm Turnbull snatched the leadership from Tony Abbott late last night to become the nation's sixth Prime Minister in eight years, and data from Bloomberg suggests that ASX investors are also set to reap the benefits from the changing of the guards.
The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has climbed in three of the past four times that Australian has changed Prime Ministers since 2007 with an average gain of 1.1% on the first trading day of the leadership change.
Investors may be underestimating the potential gain for our market today as our market opened flat, although that is a good outcome given that the futures market was pointing to an early 0.4% drop for the top 200 stock index.
When Kevin Rudd was sworn in as Prime Minister after he led the Labor Party to election victory in 2007, the S&P/ASX 200 index jumped 2.2%.
The market benchmark rose again on June 27, 2013, when Rudd wrestled back the leadership from Julia Gillard in a party room vote after she ousted him three years before.
Then on September 7, 2013, when Tony Abbott took the nation's top job when the Coalition won the election, the market bounced 0.7% on the first day of his appointment.
The only time the market failed to rise was when Gillard replaced Rudd on June 24, 2010. The index slipped 0.1% on that day.
There is good reason to think our market will stay in the black today as Turnbull is regarded to be the most business-friendly Prime Minister of group and business leaders have welcomed his new appointment.
More importantly, I believe the 'Turnbull Effect" will extend to more than just a one-day gain because he is probably the best person in politics to drive change.
The inability or unwillingness of the Abbott government to push through much needed but painful economic reform has been a big drag on business confidence.
But consumers are also likely to enjoy the "Turnbull Effect". Citigroup believes that consumer confidence will lift under Turnbull because of his progressive view on social issues, like marriage equality and climate change, which is more in-line with the Australian public compared with Abbott's ultra conservative values.
The broker thinks Turnbull's victory is positive for the economy and markets. I suspect most experts have formed the same view and that's a good enough reason to buy the market on dips.
